Following today’s Business Select Committee session on whether bankers achieved a good enough valuation on the Royal Mail IPO, Financial News has been having a debate about who was at fault; the government, the bankers, or the market?

This involved everyone interrupting each other, making sweeping statements, and accusing opponents of total ignorance. We decided to move it to email…

So the grilling this morning was fun, no? Sure, the banks probably could have done a better job on the Royal Mail IPO, but what does it matter to them? They get a grilling for one hour, then leave the session and carry on exactly as before. The whole idea of a Treasury Select Committee hearing being some kind of punishment for people in financial services is misguided.

Unfortunately for the bankers, there are two major downsides to this political circus. Goldman Sachs and UBS and the five other banks on the deal have received around £13 million of fees so far, but they are also in line for a further £4.2 million at the discretion of their client, the government. It is hard to believe they will receive this now. Also, there is the prospect of future privatisation deals, the share sales of Lloyds and RBS in particular. Will the government be so willing to hire the same banks now? Perhaps not.

If you are to blame anything, blame short-termism, something the government has been trying to change. Royal Mail has been trading for 41 days. Why don’t we hold judgement on valuation until this time next year?

If short-termism is to blame, then the government is at fault in the case of the Royal Mail IPO. The postal operator has been through years of restructuring and is only now starting to show the levels of profitability it can achieve. Add to that the ongoing industrial disputes and a picture of a company unready for life on the public markets begins to emerge. Bankers say it takes years to adequately prepare a company for flotation. In the case of bpost, the Belgian postal operator, a lengthy modernisation process and years of preparation for the public markets were made before its IPO this June. Royal Mail was not in the same position.

Opponents of the privatisation, including the Labour Party, Communication Workers Union and the Save Our Royal Mail campaign, say the process was ran on a political timetable to sell the company before it was too close to the 2015 general election. It might be the case that governments must act on political as well as economic considerations. But if we want to know whether a better value could have been achieved, there are clearly answers to be found through this line of inquiry.

Of course it was political. But while banks might find it convenient to blame the government, which could probably have achieved a better price by being patient, it is not really fair to expect politicians to act purely economically. If any government is to push through a privatisation of something as closely watched as Royal Mail they need to consider a wide range of factors including public sentiment, press coverage, political justification and election timeframe, which means getting the best price is only one (albeit important) factor of many.

That said, the least the government should be able to expect is for banks to do their job and judge the offer price well. Granted, the overall effect might not have been huge and it is not easy to say what a ‘correct’ share price is – but a 38% surge on day one clearly suggests that the UK taxpayer got bad value for money and that banks could have done better.

The privatisation has been in the works since 2008. It was ready. Even if you waited, it would never have been a smooth process. And PH you are right, making the most money possible is hardly the priority for the government. Which leaves the role of the bankers, and leaves me to defend them, something I can’t believe is happening. But here is why it is not their fault, and why their only option was to ‘undervalue’ it:

First, imagine if the Royal Mail staff receiving free shares saw their ‘pay-off’ shrink before their eyes? Now they are in the money. This is good. The alternative was simply not an option. Second, retail holders are also sitting on a profit. Given the 2015 election, this is also good. I’m sure the client (because that is what the government was) let them know that. Third, it’s the largest privatisation since 1996! Bankers were never going to test the limits of Royal Mail’s valuation. You think under-valuing makes them look bad, imagine if they overpriced it? Overpricing would mean postal workers and retail investors out of pocket. Not making enough money is a far better result than losing money – it’s simple loss aversion, when we feel losses more deeply than a lack of gains – even bankers are prone to it.

The government is elected to act in the best interests of the British public. If it has not gained the highest price for taxpayers from the privatisation of Royal Mail, the question may be asked: What has it achieved? The UK Government would argue that privatisation will help Royal Mail to modernise and improve its service levels as an enterprise open to market competition. However most voters are wary of its privatisation. A poll by YouGov this July found two-thirds of the public opposed, while a ComRes poll in September found 67% feared prices would rise and 55% felt the service would worsen.

The government may have secured a number of its objectives in the IPO, such as the positive price movement for employee and retail investors. But the accusation that taxpayer at large has been failed by the process, raised by MPs today, could linger in the minds of the electorate. If a higher valuation could have been achieved at a later date, the public will continue to question whether the government, not the banks who handled the process, acted in their best possible interests.

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The Tally is the free blog of Financial News, providing commentary and analysis on daily news events, and sometimes opening the door to the more quirky and capricious side of the financial world we live in